The Sidelining of Top IT Executives in the Governance of Outsourcing: Antecedents, Power Struggles, and Consequences

Abstract

This study attempts to highlight the paradoxical aspects of top management power contests within customer firms that outsource information technology (IT) work. Intraorganizational power theory forms the overarching theoretical basis for this study. The focus is on the antecedents and consequences of the relative power of business executives (Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer) versus IT executives (Chief Information Officer, Head of IT) in the governance of IT outsourcing. Evidence from a field survey supports the existence of a paradox. When a firm's financial performance has been poor and the firm did not have a sizeable IT workforce, the business executives give themselves greater power and sideline the IT executives. Paradoxically, rather than leading to positive consequences, such power play weakens outsourcing performance. Outsourcing performance is best when power is solely with the IT executives group, a close second best when power is divided between the two groups (joint decision making), and worst when it is solely with the business executives group. Overall, when it comes to the outsourcing of IT work, business executives might find reasons to justify increasing their own power and reducing the power of IT executives, even though this can ultimately be detrimental to outsourcing performance. These findings lend credence to case studies and practitioner articles that have reported such occurrences.

Managerial relevance statement: Under pressure due to their firm's poor performance, business executives often blame IT executives by labeling in-house IT as a cost burden. IT executives are sidelined in decisions related to IT outsourcing due to suspicions that IT executives would be overprotective of their turf. Here, business executives might argue that they are acting in the interest of their firm. Paradoxically, findings suggest that an increase in dominance by business executives leads to a decrease in outsourcing performance. Hence, IT executives need to make a strong case with various stakeholders that they deserve considerable power in the governance of IT outsourcing.

Keywords: Agency theory, Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Information Officer (CIO), Chief Operating Officer (COO), information technology (IT), outsourcing, politics, power, top management team, transaction cost theory, upper echelon theory

JEL Classification: F2, L1, L2, L8, M1, M3, M5